-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WyfAlslsP88NLSY3uKJZQSbnL9iHg0jFyLBzdw1yXoYBnzkhLZKHZQU1fU30Ipb9 COOiUvkZDTIqIqKw2eQ9fQ== 0001047469-99-017300.txt : 19990503 0001047469-99-017300.hdr.sgml : 19990503 ACCESSION NUMBER: 0001047469-99-017300 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CASCADE CORP CENTRAL INDEX KEY: 0000018061 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL TRUCKS TRACTORS TRAILERS & STACKERS [3537] IRS NUMBER: 930136592 STATE OF INCORPORATION: OR FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12557 FILM NUMBER: 99606408 BUSINESS ADDRESS: STREET 1: 2201 N.E. 201ST AVE. CITY: FAIRVIEW STATE: OR ZIP: 97024-9718 BUSINESS PHONE: (503)-669-6300 MAIL ADDRESS: STREET 1: 2201 N.E. 201ST AVE CITY: FAIRVIEW STATE: OR ZIP: 97024-9718 10-K 1 FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------- FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 31, 1999 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____ TO ____ ------------------- COMMISSION FILE NUMBER 1-12557 CASCADE CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) OREGON 93-0136592 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 2201 N.E. 201ST AVE. FAIRVIEW, OREGON 97024-9718 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE) Registrant's telephone number, including area code: 503-669-6300 Securities registered pursuant to Section 12(b) of the Act: COMMON STOCK, PAR VALUE $.50 PER SHARE Name of exchange on which registered: NEW YORK STOCK EXCHANGE Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K. / / The aggregate market value of common stock held by non-affiliates of the registrant as of March 31, 1999 was $127,591,210. The number of shares outstanding of the registrant's common stock as of March 31, 1999 was 11,534,190. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 1998 Annual Report to Shareholders are incorporated by reference into Parts I, II and IV. Portions of the definitive Proxy Statement dated April 14, 1999 to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held May 13, 1999 are incorporated by reference into Parts I and III. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE ---- PART I ITEM 1. BUSINESS 1 GENERAL 1 ATTACHMENT PRODUCTS 1 FORK PRODUCTS 2 INDUSTRIAL TIRES 4 OTHER 5 ITEM 2. PROPERTIES 6 ITEM 3. LEGAL PROCEEDINGS 6 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 6 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 7 ITEM 6. SELECTED FINANCIAL DATA 7 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 11 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 11 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 11 ITEM 11. EXECUTIVE COMPENSATION 12 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 12 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 12 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 12 SIGNATURES 14
NOTE: All references to the fiscal year (i.e. Fiscal 1996, 1997 and 1998) refer to the period ended January 31 of the year subsequent to the fiscal year (i.e. January 31, 1997, January 31, 1998, and January 31, 1999). ITEM 1. BUSINESS GENERAL Cascade Corporation is a corporation organized in 1943 under the laws of the State of Oregon. The term "the Company" as used hereinafter means Cascade Corporation and subsidiaries. The Company's headquarters are located at 2201 N.E. 201st Ave. Fairview, Oregon 97024 (telephone number 503-669-6300). The Company has for many years been one of the world's leading manufacturers of attachments, masts, hose reels, sideshifters, hydraulic cylinders and related replacement parts, primarily for the lift truck industry. Acquisitions in 1996 and 1997 expanded the Company's attachment and hydraulic cylinder capabilities, and broadened its focus to include forks and solid tires, also primarily for the lift truck industry. Following these acquisitions, the Company organized itself into three basic divisions: Attachment Products, Fork Products, and Industrial Tires, however all divisions operate under and serve the lift truck industry segment. A description of each group follows: ATTACHMENT PRODUCTS The Attachment Products division manufactures an extensive line of hydraulically actuated attachments designed for mounting on industrial lift trucks. The primary function of these products is to increase the scope and efficiency of materials handling applications normally performed by lift trucks. The Attachment Products division offers a wide variety of functionally different attachments, each of which has several models, capacities and optional combinations. These attachments have been designed to clamp, lift, rotate, push, pull, tilt and sideshift a variety of loads such as appliances, paper rolls, baled materials, textiles, beverage containers, drums, canned goods, bricks, masonry blocks, lumber, plywood and boxed, packaged, palletized and containerized products of virtually all types. In addition, the Attachment Products division manufactures hydraulic cylinders, which are used to transmit power in lift trucks and other types of machinery and industrial equipment. A substantial number of cylinders are utilized in the Company's proprietary lift truck attachment products. Hydraulic cylinders are also sold to manufacturers of various types of materials handling and other mobile equipment, usually through the customer's purchasing and engineering departments. The Company believes its Attachment Products division is one of the leading domestic and foreign independent suppliers of hydraulically actuated materials handling equipment designed for mounting on industrial lift trucks. Several lift truck manufacturers, who are customers of the Company, are also competitors in varying degrees to the extent that they manufacture a portion of their attachment requirements. Since the Attachment Products division offers a broad line of attachments capable of supplying a significant part of the total requirements for the entire lift truck industry, the Company believes lower costs resulting from its relatively high unit volume would be difficult for any individual lift truck manufacturer to achieve. This division's products are sold to both original equipment manufacturers (OEMs) and equipment dealers. Products are marketed throughout the United States, Canada, Latin America, Europe, 1 the Middle East, Australia, Africa and Asia. Since the Attachment Products division deals with lift truck manufacturers and their dealers, a substantial portion of its sales are concentrated in a few major customers, none of which account for more than 10% of the division's total sales. The Attachment Products division purchases raw materials and components, principally rolled products from steel mills, unfinished castings and forgings, hydraulic motors and hardware items such as fasteners, rollers, hydraulic seals and hose assemblies. The division is not currently experiencing any shortages in obtaining raw materials or purchased parts. A significant portion of rolled steel is purchased from a German steel mill. With respect to other materials, the division has several domestic and foreign suppliers. Difficulties in obtaining any of those items could affect the division's results. The division's headquarters are located in Portland, Oregon. North American manufacturing activities are conducted in its plants in Portland, Oregon; Springfield, Ohio; Beulaville, North Carolina, Warner Robins, Georgia; and Toronto, Ontario, Canada. Overseas manufacturing sites include the United Kingdom, The Netherlands, Australia, Sweden and China. In addition, this division has sales, engineering and warehousing facilities in Japan, Korea, Germany, France, Spain, Finland, New Zealand and South Africa. During the last five years, sales of attachments accounted for 76% to 54% of the Company's consolidated sales, and hydraulic cylinders accounted for approximately 17% to 8%. The lower percentages are for recent years and reflect the addition of Fork Products and Industrial Tires to the Company's product line. Replacement parts for these products and other sales accounted for an additional 11% to 5% of total sales. North American sales ranged from 55% to 60% of division sales, while European sales ranged from 31% to 32%. The backlog for this division was approximately $19,196,000 at January 31, 1999. Of this order backlog, approximately 85% was due within 60 days and substantially all within six months. The Attachment Products division maintains an extensive research and development effort aimed at increasing the efficiency, durability and capacity range of its product line. The Company does not believe patents are important to the division's business. The division's products are manufactured with the Cascade name and symbol, for which the Company has secured trademark protection. FORK PRODUCTS In March 1997, the Company established the Fork Products division with the purchase of Kenhar Corporation (see note 10 to the 1998 Annual Report to Shareholders). Forks are certified lifting devices and subject to strict design, construction and safety requirements established by industry associations and the International Standards Association. The Fork Products division continues to market under the Kenhar brand name. Kenhar forks are carefully designed and engineered products requiring specially formulated steel, a manufacturing process which strengthens the "heel", certified welding of the brackets which hold them to the carriage and heat treatment of the finished product. 2 The Fork Products division presently offers a wide variety of both standardized and specialized forks. Fork characteristics are dictated by the expected capacity to be lifted, the characteristics of the load, the ambient environment in which they are employed, the terrain over which the load will be moved and the operational life cycle of the vehicle using the fork. Accordingly, while there are some standard fork products, a wide range of forks in custom sizes and shapes is demanded in the market. The Company believes the Fork Products division is one of the leading independent manufacturers of forks for lift trucks in the world. Market share varies by geographic region. In addition to sales to the lift truck market, the Fork Products division has an increasing market share of forks sold to OEMs of construction, mining, agricultural and industrial (other than lift trucks) mobile equipment. The Company believes the Fork Products segment is the leading manufacturer in North America. It is the preferred supplier of many OEMs as well as after-market dealers and distributors. This division also has significant market share in Europe and is continuing its sales and manufacturing expansion into the Asia/Pacific region. Since the Fork Products division offers a broad range of both standard and specialized forks it is capable of supplying a significant part of the total requirements for the lift truck industry. Management believes that its high-unit volume results in lower costs that would be difficult for any single competitor to achieve. As with other divisions of the Company, the division's sales are primarily related to the lift truck industry. A substantial portion of its sales are concentrated in a few major customers. During 1998, the division's largest customer accounted for 12.4% of its sales, while sales to its next largest customer were 2.6% of its sales. The Fork Products division purchases material and components necessary to produce its products. The principal item purchased is bar steel. The division is not currently experiencing any shortage in obtaining bar steel. As with other manufactures using bar steel, the Fork Products division obtains its bar steel from steel mills under long-term purchase contracts. While the division has alternative suppliers of bar steel identified, difficulties in obtaining alternative sources of bar steel could affect the division's operating results should bar steel from one of its primary suppliers become unavailable. Headquarters of this division are located in Guelph, Ontario, Canada. North American manufacturing activities are conducted in plants in Guelph, Canada and Findlay, Ohio. Overseas manufacturing sites include Manchester, United Kingdom; La Machine, France; Brescia, Italy; Hebei, China; and Inchon, South Korea. This division's products are primarily sold to OEMs and also to lift truck dealers. Products are marketed extensively throughout North America and Europe. In addition, the division is continuing to increase marketing activities and market share in Asia, Australia and New Zealand. As previously mentioned, this division was purchased in March 1997. Accordingly, the Company's consolidated net sales includes sales from the Fork Products division for the year ended January 31, 1999 and the eleven months ended January 31, 1998. During these periods this division accounted for 21% of total Company sales. During these same periods, North American sales ranged from 69% to 67% of division sales, while European sales ranged from 29% to 28%. 3 The backlog for this division was approximately $8,966,000 at January 31, 1999. Of this order backlog, approximately 87% was due within 60 days and substantially all within six months. Patents have been a relatively unimportant factor in the development of the division's business. INDUSTRIAL TIRES In January 1997 the Company purchased Industrial Tires Limited and created the Industrial Tire division (see note 10 to the consolidated financial statements of the 1998 Annual Report to Shareholders). The Industrial Tire division continues to market products under the ITL brand name. This division designs, manufactures, sells and services non-pneumatic or solid tires. Solid tires are used extensively on lift trucks and other industrial mobile equipment such as airport ground support equipment, aerial platform equipment and large loader and skid steer machinery. Subsequent to year end the Company announced its intention to sell the Industrial Tire division to Maine Rubber Company. The agreement calls for Maine Rubber Company to purchase all operating assets and assume certain liabilities of the Industrial Tire division as well as the Fork Products division's baseband manufacturing operations. Closing of the transaction, valued between $38,000,000 and $40,000,000, was completed on April 29, 1999. The Industrial Tire division is one of the leading North American suppliers of solid tires to the lift truck industry. In addition, the Industrial Tire division has made significant progress in expanding into the much broader market of high-load, high-hazard, and low-speed applications such as aerial platform equipment, airport ground support equipment and off-the-road applications such as waste management and underground mining. Products are sold primarily to the aftermarket through independent distributors, equipment dealers and tire dealers. The Industrial Tire division also sells a significant amount of its volume to OEMs for installation on new equipment. The Industrial Tire division recently expanded its sales and marketing outside of North America. The Industrial Tire division experiences intense competition from large companies offering a full range of products to smaller companies specializing in certain segments of the market. Important competitive factors include price, availability, service, product quality and company image. Management believes that through its commitment to research and development of new products combined with existing manufacturing resources, low cost contract manufacturing and commitment to state-of-the-art distribution technologies, the Industrial Tire division should remain competitive. The Industrial Tire division purchases materials necessary to produce its products. The principal products purchased are rubber compounds and precision manufactured steel wheels ("basebands"). During 1997, the division experienced an interruption in the supply of compounded rubber from its largest supplier. However, with only a slight effect on operations, the division was able to quickly identify an alternative supplier at comparable costs. Basebands are currently purchased from the Fork Products segment. As with compounded rubber products, management believes alternative suppliers of basebands are available. The Industrial Tire division is not experiencing any shortages in obtaining basebands. Nevertheless, difficulties in obtaining any of these products could affect the division's operating results. 4 The division's headquarters, manufacturing plant and retail center are located in Mississauga, Ontario, Canada. Contract manufacturing is conducted in factories in Mexico and China. In addition to independent distributors, the division has nine distribution and warehousing centers located throughout North America. As with other divisions of the Company, the division's sales are primarily related to the lift truck industry. A substantial portion of its sales are concentrated in a few major customers. During 1998, the division's largest customer accounted for 20.2% of its sales, while sales to its next largest customer were 12.2% of its sales. For the years ended January 31, 1999 and 1998, this division accounted for 9.5% to 9.6% of total Company sales. Substantially all sales were in North America. The backlog for this division was approximately $297,000 at January 31, 1999. Substantially all of this order backlog was due within 60 days. Patents have been a relatively unimportant factor in the development of the division's business. OTHER RESEARCH AND DEVELOPMENT Most of the Company's research and development activities are performed in a 28,000-square-foot product development center in Portland, Oregon. The engineering staff develops and designs almost all of the products sold by the Company. This staff numbers approximately 79 engineers and is continually involved in developing new products and applications in the materials handling field and improving existing lines. Consolidated research and development expenses in the fiscal years ended January 31, 1999, 1998 and 1997 were approximately $4,500,000, $5,500,000 and $4,900,000, respectively. ENVIRONMENTAL QUALITY From time to time the Company is the subject of investigations, conferences, discussions, and negotiations with various federal, state, local and foreign agencies with respect to cleanup of hazardous waste and compliance with environmental laws and regulations. The balance of the response to this section of Item 1 is incorporated by reference to Note 12 of the Notes to the Consolidated Financial Statements in the 1998 Annual Report to Shareholders and the information contained in "Management's Discussion and Analysis of Financial Conditions and Results of Operations". EMPLOYEES At January 31, 1999 the Company had 2,174 full-time employees throughout the world. The majority of these employees are not subject to collective bargaining agreements. The Company believes relations with its employees are excellent. FOREIGN OPERATIONS The Company has substantial operations outside the United States. There are additional business risks attendant to the Company's foreign operation such as the risk that the relative value of the underlying local currencies may weaken when compared to the U.S. dollar. For further information about foreign operations, please see Note 14 of the 1998 Annual Report to Shareholders. 5 FORWARD-LOOKING STATEMENTS Forward-looking statements throughout this report are based upon assumptions involving a number of risks and uncertainties. Factors which could cause actual results to differ materially from these forward-looking statements include, but are not limited to competitive factors in, and the cyclical nature of, the materials handling industry; fluctuations in lift truck orders or deliveries, availability and cost of raw materials; general business and economic conditions in North America, Europe and Asia; foreign currency fluctuations; effectiveness of the Company's cost reduction initiatives; and the Company's success in organizationally and operationally integrating recently acquired businesses. ITEM 2. PROPERTIES The Company owns and leases various types of properties located throughout North America, Europe, Australia, South Africa, China, Korea and Japan. Of the above mentioned properties, the following are considered principal facilities: The Company's principal executive offices are located at 2201 N.E. 201st Ave., Fairview, Oregon 97024. The Company operates sales offices, manufacturing or warehouse facilities in 16 countries. Its major manufacturing facilities in the United States are located in Springfield and Findlay, Ohio; Warner Robins, Georgia; Beulaville, North Carolina and Portland, Oregon. Major manufacturing facilities located outside the United States include Almere and Hoorn, The Netherlands; La Machine, France; Manchester and Newcastle, United Kingdom; Vaggeryd, Sweden; Toronto, Mississauga and Guelph, Ontario, Canada; Brisbane and Melbourne, Australia; Inchon, Korea; Xiamen and Hebei, China; and Brescia, Italy. Sales offices and warehouse facilities are located in Japan, South Africa, New Zealand, Australia, Sweden, Italy, United Kingdom, France, Germany, Spain, The Netherlands, China, Canada and the United States. (See Item 1 Business for more information regarding the location of the principal facilities for each industry segment.) The Company owns 14 facilities that include major manufacturing facilities and certain sales and warehouse buildings, four of which are located in the United States and 10 of which are located in other countries. The Company leases 33 facilities, 13 of which are located in the United States and 20 of which are located in other countries. The Company generally considers the productive capacity of the plants operated by each of its industry segments adequate and suitable for the requirements of each such segments. Several subsidiary companies are parties to various leases of office and computer equipment, storage space and automobiles which are of minor consequence. ITEM 3. LEGAL PROCEEDINGS Neither the Company nor any of its subsidiaries are involved in any material pending legal proceedings other than litigation related to environmental matters discussed at page 15 of the 1998 Annual Report to Shareholders or matters in the regular course of business. The Company and its subsidiaries are adequately insured against product liability, personal injury and property damage claims which may occasionally arise. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable 6 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS As of January 31, 1999, there were 369 holders of the Company's common stock including blocks of shares held by various depositories. It is the Company's belief that when the shares held by the depositories are attributed to the beneficial owners, the total exceeds 2,500. The remainder of the response to this Item is incorporated by reference to page 21 of the 1998 Annual Report to Shareholders. During the year ended January 31, 1998, a Canadian subsidiary of the Company issued 1,100,000 preference shares in connection with the acquisition of Kenhar Corporation, each exchangeable for one common share of the Company. The preference shares were issued in an exempt private offering transaction and have not been registered. The Company has agreed to register common shares issued to the holder of exchangeable shares under certain conditions. Absent registration, Rule 144 would apply to sales of such common shares. The Company also issued 225,000 common shares in connection with the acquisition of Hyco-Cascade Ltd., and 29,006 common shares in connection with the acquisition of minority interests in two subsidiaries of Kenhar, all in exempt private offering transactions. These common shares have not been registered. Absent registration, Rule 144 would apply to sales of such common shares. ITEM 6. SELECTED FINANCIAL DATA Pages 1 and 6 through 18 of the 1998 Annual Report to Shareholders is incorporated by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS NET REVENUES Consolidated net sales for 1998 totaled $407,930,000, a 10.3% increase from 1997 sales of $369,865,000. In 1997, consolidated net sales were 69.3% higher then 1996 due to acquisitions made in the fourth quarter of 1996 and the first quarter of 1997 as well as strong industry conditions. Attachment Products sales in North America were 9.1% higher than in 1997 after eliminating the effects of the sale of the mast business unit as discussed below. Industry booking figures leveled off from their steady climb of the past three years, but were still at near record levels. After a brief decline in the third quarter of the year, shipments and new orders for lift trucks from manufacturers inched back up at year end. Industry forecasts generally call for activity in calendar 1999 to be about the same as 1998. Compared to fiscal 1996, fiscal 1997 Attachment Products sales in North America increased by 10.6%. Attachment Product sales in Europe grew 24.0% from the previous year after eliminating the effect of certain OEM mast business which has been discontinued. European industry statistics dropped sharply in September and October, but showed signs of strengthening at the end of the year. Forecasts call for a flat to slightly lower year in lift truck shipments in Europe for the coming year. Our Asian subsidiaries have dealt well with the difficult economic conditions in that region of the world. They have held market share and our South Korean operation posted a slight profit. Fork Products sales in North America increased 9.3% in 1998 compared to 1997 and European busi- 7 ness increased by 6.7% as well. The addition of Kenhar forks to our product line in 1997 has been successful, and further gains are planned this year as marketing, pricing and operational strategies take full effect. The addition of the Fork Products group in 1997 resulted in adding $79,745,000 to consolidated net sales in 1997 and $88,302,000 in 1998. Industrial Tire sales increased by 9.3% in 1998 from 1997. The product group was acquired at the end of fiscal 1996. Industrial Tire sales added $35,380,000 to consolidated net sales in 1997 and $38,660,000 in 1998. At the end of 1998, the Company divested its mast operation by selling it to former members of management, who have formed a new company, Lift Technologies, Inc. The Company determined that the risk from customer concentration along with potential future returns would not justify the necessary new investment that would be required to modernize the design of this product line. In fiscal 1998, the mast product line contributed approximately $50,400,000 in net sales. While this divestiture will cause revenues to be reduced in the coming year, due to the low profit margins of this product line and high costs of future product redesign, management does not expect a significant negative impact on future operating results. Any significant decline in the lift truck market could negatively affect future operating results. COST OF SALES As a percentage of sales, cost of sales was 68.9% in 1998, 70.2% in 1997 and 65.5% in 1996. The percentage decreased in 1998 as the result of a combination of selected price increases, cost reduction efforts and additional manufacturing efficiencies generated from higher factory throughput. As noted earlier the Industrial Tire and Fork Products divisions were added in late fiscal 1996 and early 1997, respectively. As these product lines have traditionally been sold to original equipment manufacturers (OEM's), these divisions have higher costs relative to sales then the Attachment Products division. As a result, the 1997 cost of sales percent of sales is significantly higher than the 1996 percent. DEPRECIATION AND AMORTIZATION Depreciation and Amortization expense was $21,550,000, $20,280,000 and $10,280,000 in 1998, 1997 and 1996, respectively. As a percentage of sales, depreciation and amortization was 5.3% in 1998, 5.5% in 1997 and 4.7% in 1996. As a result of business acquisitions made in 1997 and 1996 the Company added significant amounts of depreciable assets to its balance sheet and $99,688,000 of goodwill. The goodwill is being amortized over its 20 year estimated useful life. SELLING AND ADMINISTRATIVE EXPENSES The absolute dollar amounts of selling and administrate expenses have increased in order to support the growth in net revenues. As a percentage of net sales, selling and administrative expenses continue to decline and were 16.8% in 1998, 17.3% in 1997 and 18.4% in 1996. ENVIRONMENTAL EXPENSES, NET Environmental expenses in 1997 include the effect of settlements totaling $23,750,000 with several insurance companies. The net impact of these settlements after adjusting for certain litigation and environmental expenses was a credit to environmental expense of $14,890,000. 8 NONOPERATING ITEMS Interest expense was $10,940,000, $9,440,000 and $876,000 in 1998. 1997 and 1996, respectively. In 1997, the Company issued additional debt to fund business acquisitions. Other Income of $4,755,000 in 1998 included the gain on the sale of two parcels of land. NET INCOME Net income for the year ended January 31, 1999 was a record $21,370,000 or $1.63 per share. This compares to $21,040,000 ($1.60 per share) for the year ended January 31, 1998, which included $9,770,000 ($.74 per share) resulting from insurance settlements related to environmental litigation initiated several years ago. Fiscal 1998's results of 5.2% were a strong improvement over the prior year when net income (before insurance settlements) was 3.0% of sales. In fiscal year 1998 net income included $90,000 from the Company's Australian subsidiary compared to a loss of $2,406,000 in 1997. The changes made are beginning to show results, and with continued focus, management expects additional progress in 1999 towards the goal of a satisfactory return on the Company's investment in Australia. Attachment operations in China were profitable in 1998 and additional progress is anticipated in 1999. The operation in Hebei, PRC has improved its quality and is beginning to export forks to Korea. These improvements, along with increased volume, should help Hebei achieve its goals in 1999. Forecasts for 1999 are for a continuation of the level of activity experienced in 1998. Nevertheless, the Company is monitoring industry signs for the potential for lower activity in the year 2000 and later. The Company has worked hard in 1998 to improve margins and reduce the cost of doing business, and will continue to take steps to be as efficient as possible in 1999 and coming years. LIQUIDITY AND CAPITAL RESOURCES For the year ended January 31, 1999, capital expenditures totaled $22,357,000, which includes $8,268,000 spent on the company's ERP project, compared to $15,453,000 for 1997 and $16,624,000 for 1996. Planned capital expenditures for 1999 of $19,226,000 include $4,459,000 for implementation of an enterprise-wide software system to link all of the Company's core business systems. The implementation is being phased-in throughout the operating units with final completion scheduled for fiscal 2000. Dividends for 1998 and 1997 totaled $.40 per share as compared to $.45 per share in 1996. The 1996 dividends included a special $.09 per share year end dividend. In 1997 the Company increased the quarterly dividend from $.09 to $.10 per share. No special year-end dividends were declared in 1998 or 1997. The Company's financial condition remains strong. The balance sheet shows $11,460,000 in cash and cash equivalents at January 31, 1999. Together with established short-term lines of credit totaling $22,322,000, management believes these resources are more than sufficient to meet planned short-term needs and provide for working capital requirements associated with projected growth. The sale of the mast operation and the future sale of the industrial tire division would further strengthen the company's liquidity position. Net cash provided by operating activities was $20,702,000 in 1998 compared to $15,701,000 in 1997 and $22,374,000 in 1996. The increase in 1998 was primarily due to a decrease in deferred income 9 taxes and an increase in accounts payable. The decrease in cash provided by operating activities in 1997 compared to 1996 was due to increases in inventories and deferred taxes and decrease in accounts payable and accrued expenses, partially offset by increases in net income, depreciation and amortization. The Company's debt to equity ratio improved from 1.45 to 1.00 at January 31, 1998 to 1.33 to 1.00 at January 31, 1999. The US dollar strengthened when compared to most foreign currencies where the Company has substantial operations. As a result, foreign currency translation adjustments decreased shareholders' equity by $3,184,000 ($.24 per share) in 1998. Translation adjustments resulted in decreases in shareholder's equity of $6,874,000 ($.52 per share) and $2,095,000 ($.18 per share) in 1997 and 1996. IMPACT OF THE YEAR 2000 ISSUE The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Some of the Company's computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, ship product or engage in any number of similar business activities. Based on its assessment of the Year 2000 Issue, the Company determined that it would need to modify or replace portions of its software so that its computer systems will properly utilize dates beyond December 31, 1999. The Company presently believes that with modifications to existing software and conversions to new software, the Year 2000 Issue can be mitigated. However, if such modifications and conversions are not made or completed timely, the Year 2000 issue could have a material impact on the operations of the Company. The Company has identified significant suppliers and service providers to determine the extent to which the Company is vulnerable to those third parties' failure to remediate their own Year 2000 Issue. This program is ongoing and the Company will continue to evaluate responses received to determine if Year 2000 issues exist with these third parties. It is expected that full identification will be completed by June 1, 1999. To the extent that responses to Year 2000 readiness are unsatisfactory, contingency plans include finding alternative suppliers where practical. For those suppliers that are not easily replaced, the Company will maintain adequate supplies to help counteract short-term supply interruptions. The Company has received indications that most of its customers are working on Year 2000 compliance. In the event that any of the Company's significant customers or suppliers do not successfully and timely achieve Year 2000 compliance, and the Company is unable to replace them with new customers or alternative suppliers, the Company's business or operations could be adversely affected. The Company has initiated the implementation of an enterprise-wide resource planning (ERP) software system to link all of its core business systems throughout the Company. This implementation was the result of normal business migration to improved and expanded software systems to increase the Company's ability to improve its operational efficiency, reduce costs and enhance overall quality. As part of this implementation, the Company will also replace those business systems that will encounter the Year 2000 Issue. The Company plans to complete the ERP project in the year 2000 and plans to complete those portions of the project that will address the Year 2000 Issue in the second quarter of 1999. The total cost of the ERP project is estimated to exceed $14,000,000, including 10 $8,268,000 spent during fiscal 1998, and is being funded through leases and operating cash flows. The Company is currently evaluating data gathered with regard to non-financial software and imbedded chip technology to asses the impact of the Year 2000 on its non-financial systems such as manufacturing equipment, security equipment, etc. Scheduled completion of the data gathering and evaluation of the Year 2000 impact is June 1, 1999. The Company does not, at this time, have sufficient data to estimate the cost of achieving Year 2000 compliance for its non-financial systems, however, based on information received to date, the costs are not expected to be material. Since the Company is in the information gathering stage, the Company expects to have a contingency plan in place for its internal non-financial software and imbedded chip technology by July 31, 1999. The costs of the project and the date on which the Company plans to complete the Year 2000 modifications are based on management's best estimates which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third party modifications, plans and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those plans. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes and similar uncertainties. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Pages 6 through 18 of the 1998 Annual Report to Shareholders are incorporated by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The definitive Proxy Statement dated April 14, 1999 is incorporated by reference. The term of office of all officers is one year. Names, ages and positions of all executive officers of Cascade Corporation follow.
- ---------------------------------------------------------------------------------------------------------------- Year First Elected Name Age Officer Present Position - ---------------------------------------------------------------------------------------------------------------- Robert C. Warren, Jr. 50 1984 President, Chief Executive Officer and Director James P. Miller 51 1992 Executive Vice President, Secretary and Chief Operating Officer Gregory S. Anderson 50 1991 Vice President-Human Resources Richard S. Anderson 51 1996 Senior Vice President-International Terry H. Cathey 51 1993 Vice President-Material Handling Operations Robert L. Mott 57 1996 Vice President-OEM Product Group Kurt G. Wollenberg 49 1997 Vice President-Finance, Chief Financial Officer and Treasurer James R. Keene 52 1998 Vice President-Sales Charlie S. Mitchelson 43 1999 Vice President and Managing Director-Europe - ----------------------------------------------------------------------------------------------------------------
11 ITEM 11. EXECUTIVE COMPENSATION The definitive Proxy Statement dated April 14, 1999 is incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The definitive Proxy Statement dated April 14, 1999 is incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The definitive Proxy Statement dated April 14, 1999 is incorporated by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K INDEX TO FINANCIAL STATEMENTS (a) 1. CONSOLIDATED FINANCIAL STATEMENTS The Consolidated Financial Statements, together with the report thereon of PricewaterhouseCoopers LLP dated March 23, 1999, appearing on pages 6 to 18 of the accompanying 1998 Annual Report are incorporated by reference in this Form 10-K Annual Report. With the exception of the aforementioned information and information incorporated in Items 1, 5, 6 and 8, the 1998 Annual Report is not to be deemed filed as part of this report. 2. FINANCIAL STATEMENT SCHEDULES-1998, 1997 AND 1996 Financial statement schedules not included in this Form 10-K Annual Report have been omitted because they are not applicable or not required. The individual financial statements of the registrant and its subsidiaries have been omitted since the registrant is primarily an operating company and all subsidiaries included in the consolidated financial statements, in the aggregate, do not have minority equity interests and/or indebtedness to any person other than the registrant or its consolidated subsidiaries in amounts which together exceed 5% of the total consolidated assets at January 31, 1999, except indebtedness incurred in the ordinary course of business which is not overdue and which matures within one year from the year of its creation. 3. EXHIBITS 1. Copy of Notice of Annual Meeting dated April 14, 1999. 2. Copy of Form of Proxy for Annual Meeting. 3. Basic documents incorporated by reference: - Articles of Incorporation filed with the Commission May 28, 1965. - Amendment to Articles of Incorporation filed in Proxy Statement for annual meeting of shareholders May 12, 1987, filed with the Commission April 14,1988. - Amendment to Articles of Incorporation filed in Proxy Statement for annual meeting of shareholders May 9, 1989, filed with the Commission April 27, 1990. - By-Laws, as amended to February 8, 1989, filed with the Commission April 27,1990. - Specimen copy of stock certificate, filed as Exhibit 4-1 to Form S-1, filed with the Commission May 28, 1965. - Amendment to Articles of Incorporation included in the Proxy Statement for Annual Meeting of Shareholders May 14, 1998, filed with the Commission April 13, 1997. 12 4. Documents required by Item 14(c), all of which are exhibits to Form 8-K filed with the Commission March 27, 1997, and are incorporated by reference: - Share Purchase Agreement dated March 11, 1997, among the Company, Cascade (Canada) Holdings, Inc., and the shareholders of Kenhar Corporation, Exhibit 2.1. - Employment agreement dated March 11, 1997, among Cascade Corporation, Couphar Ltd., and William J. Harrison, Exhibit 10.1. - Refusal Agreement dated March 11, 1997, among Cascade Corporation, Couphar Ltd., and William J. Harrison, Exhibit 10.2. - Registration Rights Agreement dated March 11, 1997, between Cascade Corporation and Couphar Ltd., Exhibit 10.3. - Shareholders' Agreement dated March 11, 1997, between the Trustees of the Robert C. and Nani S. Warren Revocable Trust and Couphar Ltd., Exhibit 10.4. (b) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the last quarter of fiscal 1998. 13 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, the registrant, CASCADE CORPORATION has duly caused this annual report to be signed on its behalf by the undersigned thereunto duly authorized. CASCADE CORPORATION /s/Kurt G. Wollenberg -------------------------------------------- By: Kurt G. Wollenberg VICE PRESIDENT - FINANCE AND CHIEF FINANCIAL OFFICER (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the following persons on behalf of the registrant and in the capacities on the dates indicated. /s/ C. Calvert Knudsen 4/29/99 /s/ Robert C. Warren, Jr. 4/29/99 - --------------------------------------- ------------------------------------ C. Calvert Knudsen, DIRECTOR Date Robert C. Warren, Jr. Date PRESIDENT AND CHIEF EXECUTIVE OFFICER, DIRECTOR /s/ Joseph J. Barclay, 4/29/99 /s/ Richard C. Hire 4/29/99 - --------------------------------------- ------------------------------------ Joseph J. Barclay, DIRECTOR Date Richard C. Hire, DIRECTOR Date /s/ Eric Hoffman 4/29/99 /s/ Greg H. Kubicek 4/29/99 - --------------------------------------- ------------------------------------ Eric Hoffman, DIRECTOR Date Greg H. Kubicek, DIRECTOR Date /s/ Nicholas R. Lardy 4/29/99 /s/ Ernest C. Mercier 4/29/99 - --------------------------------------- ------------------------------------ Nicholas R. Lardy, DIRECTOR Date Ernest C. Mercier, DIRECTOR Date /s/ James S. Osterman 4/29/99 /s/ Jack B. Schwartz 4/29/99 - --------------------------------------- ------------------------------------ James S. Osterman, DIRECTOR Date Jack B. Schwartz, Date ASSISTANT SECRETARY, DIRECTOR /s/ Henry W. Wessinger II 4/29/99 /s/ Nancy Wilgenbusch 4/29/99 - --------------------------------------- ------------------------------------ Henry W. Wessinger II, DIRECTOR Date Nancy Wilgenbusch, DIRECTOR Date 14 EX-99.1 2 EXHIBIT 99.1 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
YEAR ENDED JANUARY 31 1999 1998 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------- (Dollars in Thousands except where noted*) Net sales $ 407,930 $ 369,865 $ 218,485 $ 234,030 $ 183,365 Operating income $ 36,685 $ 40,770 $ 24,850 $ 16,415 $ 19,350 Net income $ 21,370 $ 21,040(2) $ 17,420 $ 10,550(3) $ 12,250 EBITDA(1) $ 62,990 $ 61,200 $ 35,065 $ 25,640 $ 26,535 Per common share* Net income: Basic $ 1.77 $ 1.73(2) $ 1.48 $ .88(3) $ 1.02 Diluted $ 1.63 $ 1.60(2) $ 1.48 $ .88(3) $ 1.02 Book value $ 10.31 $ 9.32 $ 8.46 $ 7.74 $ 7.37 Working capital $ 94,548 $ 81,063 $ 32,750 $ 49,829 $ 40,821 Expenditures for property, plant and equipment $ 22,357 $ 15,453 $ 16,624 $ 11,825 $ 21,921 Total assets $ 347,857 $ 349,592 $ 199,493 $ 153,190 $ 137,109 Long-term debt $ 142,783 $ 144,785 $ 12,810 $ 9,531 $ 7,809 Shareholders' equity $ 119,494 $ 110,551 $ 98,757 $ 92,057 $ 88,538 Number of employees 2,174 2,322 1,293 1,103 993
(1) Management believes that Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) is a key measure of cash flow. (2) After $14,890 ($9,770 or $.74 per share, net of taxes) credit for environmental insurance settlements, net of certain expenses. See note 12 to consolidated financial statements. (3) After $12,000 ($7,800 or $.65 per share, net of taxes) charge for environmental expenses. See note 12 to consolidated financial statements. - -------------------------------------------------------------------------------- FINANCIAL SUMMARY - -------------------------------------------------------------------------------- DOLLARS IN MILLIONS NET SALES - -------------------------------------------------------------------------------- [GRAPH] OPERATING INCOME - -------------------------------------------------------------------------------- [GRAPH] NET INCOME - -------------------------------------------------------------------------------- [GRAPH] EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (EBITDA)(1) - -------------------------------------------------------------------------------- [GRAPH] 1
CONSOLIDATED STATEMENTS OF INCOME - ---------------------------------------------------------------------------------------------------------------------- (Dollars in Thousands, except per share amounts) YEAR ENDED JANUARY 31 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------------- NET SALES $ 407,930 $ 369,865 $ 218,485 - -------------------------------------------------------------------------------------------------------------------------- Operating expenses: Cost of goods sold 281,195 259,605 143,080 Depreciation and amortization 21,550 20,280 10,280 Selling and administrative expenses 68,500 64,100 40,275 Environmental expenses, net (Note 12) - (14,890) - - -------------------------------------------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES 371,245 329,095 193,635 - -------------------------------------------------------------------------------------------------------------------------- Operating income 36,685 40,770 24,850 Interest expense 10,940 9,440 876 Interest income (755) (610) (1,076) Other (income) expense, net (4,755) (150) 65 - -------------------------------------------------------------------------------------------------------------------------- Income before income taxes 31,255 32,090 24,985 Income taxes (Note 4) 9,885 11,050 7,565 - -------------------------------------------------------------------------------------------------------------------------- Net income 21,370 21,040 17,420 - -------------------------------------------------------------------------------------------------------------------------- Dividends paid on preferred shares of subsidiaries 530 570 60 - -------------------------------------------------------------------------------------------------------------------------- Net income applicable to common shareholders $ 20,840 $ 20,470 $ 17,360 - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Basic earnings per share $ 1.77 $ 1.73 $ 1.48 - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Diluted earnings per share $ 1.63 $ 1.60 $ 1.48 - -------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an integral part of this statement. 6
CONSOLIDATED BALANCE SHEET - --------------------------------------------------------------------------------------------------------------------- (Dollars in Thousands except share and per share amounts) YEAR ENDED JANUARY 31 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ ASSETS Current assets: Cash and cash equivalents $ 11,460 $ 12,966 Accounts receivable, less allowance for doubtful accounts of $1,009 and $743 72,354 62,271 Inventories, at average cost which is lower than market: Finished goods and components 44,496 42,280 Goods in process 2,309 3,965 Raw materials 15,210 12,035 - ------------------------------------------------------------------------------------------------------------------------------------ 62,015 58,280 Deferred income taxes (Note 4) 254 1,165 Prepaid expenses 7,640 6,011 - ------------------------------------------------------------------------------------------------------------------------------------ Total current assets 153,723 140,693 Property, plant and equipment, net (Notes 5 and 9) 100,075 101,147 Deferred income taxes (Note 4) 3,370 4,044 Goodwill (Note 10) 86,462 94,982 Other assets 4,227 8,726 - ------------------------------------------------------------------------------------------------------------------------------------ Total assets $ 347,857 $ 349,592 - ------------------------------------------------------------------------------------------------------------------------------------ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable to banks (Note 5) $ 9,817 $ 13,193 Current portion of long-term debt (Note 5) 6,510 2,501 Accounts payable 26,789 23,604 Accrued payroll and payroll taxes 6,954 7,331 Other accrued expenses 9,105 13,001 - ------------------------------------------------------------------------------------------------------------------------------------ Total current liabilities 59,175 59,630 Long-term debt (Note 5) 142,783 144,785 Accrued environmental expenditures (Note 12) 7,228 10,316 Other liabilities 3,228 3,720 - ------------------------------------------------------------------------------------------------------------------------------------ Total liabilities 212,414 218,451 - ------------------------------------------------------------------------------------------------------------------------------------ Commitments and contingencies (Notes 10, 11,12 and 13) Mandatorily redeemable convertible preferred stock and minority interest (Note 10) 15,949 20,590 Shareholders' equity (Notes 6 and 7): Common stock, $.50 par value, authorized 20,000,000 shares; 11,715,488 and 11,988,208 shares issued 5,858 5,994 Additional paid-in capital -- 3,711 Retained earnings 125,065 109,091 Accumulated other comprehensive income: Cumulative foreign currency translation adjustments (11,200) (8,016) Treasury stock, at cost, 127,498 shares (229) (229) - ------------------------------------------------------------------------------------------------------------------------------------ Total shareholders' equity 119,494 110,551 - ------------------------------------------------------------------------------------------------------------------------------------ Total liabilities and shareholders' equity $ 347,857 $ 349,592 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an integral part of this statement. 7
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------------------------ (Dollars in Thousands except per share amounts) - ------------------------------------------------------------------------------------------------------------------------------------ Accumulated Common Stock Additional Other Annual ----------------------- Paid-In Treasury Retained Comprehensive Comprehensive Shares Amount Capital Stock Earnings Income Income - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT JANUARY 31, 1996 11,897 $ 6,139 $ 568 $ (686) $ 85,083 $ 953 $ - Net income - - - - 17,420 - 17,420 Dividends ($0.45 per share) - - - - (5,340) - - Common stock repurchased (230) (115) (568) - (2,602) Translation adjustment - - - - - (2,095) (2,095) - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT JANUARY 31, 1997 11,667 6,024 - (686) 94,561 (1,142) 15,325 Net income - - - - 21,040 - 21,040 Dividends ($0.40 per share) - - - - (5,505) - - Common stock repurchased (60) (30) (1,005) - - Treasury shares issued for acquisitions 254 - 3,711 457 - - - Translation adjustment - - - - - (6,874) (6,874) - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT JANUARY 31, 1998 11,861 5,994 3,711 (229) 109,091 (8,016) 14,166 Net income - - - - 21,370 - 21,370 Dividends ($0.40 per share) - - - - (5,361) - - Common stock repurchased (289) (145) (3,919) - - - - Stock options exercised 15 8 239 - - - - Redemption of mandatorily redeemable convertible preferred stock - - (54) - (35) - - Translation adjustment - - - - - (3,184) (3,184) Other 1 1 23 - - - - - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT JANUARY 31, 1999 11,588 $ 5,858 $ - $ (229) $ 125,065 $ (11,200) $ 18,186 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an integral part of this statement. 8
CONSOLIDATED STATEMENT OF CASHFLOWS - -------------------------------------------------------------------------------------------------------------------------------- (Dollars in Thousands) Year Ended January 31 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 21,370 $ 21,040 $ 17,420 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 21,550 20,280 10,280 Deferred income taxes 1,770 (9,863) 613 Gain on sale of property (3,873) - - Changes in operating assets and liabilities, net of effects of acquisitions: Accounts receivable (10,083) (963) 535 Inventories (3,735) (6,626) (258) Income taxes (3,658) 2,904 (2,099) Prepaid expenses (1,629) (3,577) (1,073) Accounts payable and accrued expenses 2,570 (7,018) (1,523) Accrued environmental expenditures (3,088) 1,403 (1,587) Other liabilities (492) (1,879) 66 - -------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 20,702 15,701 22,374 - -------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment (15,459) (15,453) (16,624) Dispositions of property, plant and equipment 1,545 - - Business acquisitions - (72,534) (22,849) Proceeds from sale of property, plant and equipment 9,830 5,036 - Other assets 7,772 (4,377) 64 - -------------------------------------------------------------------------------------------------------------------------------- Net cash (used) provided by investing activities 3,688 (87,328) (39,409) - -------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on long-term debt (5,241) (36,034) (2,742) Proceeds from issuance of long-term debt - 135,759 2,055 Notes payable to banks, net (3,376) (20,264) 19,297 Redemption of convertible preferred stock and minority interest (4,730) - - Repurchase of common stock (4,064) (1,035) (3,285) Issuance of common stock 271 - - Cash dividends paid (5,361) (5,505) (5,340) - -------------------------------------------------------------------------------------------------------------------------------- Net cash (used) provided by financing activities (22,501) 72,921 9,985 - -------------------------------------------------------------------------------------------------------------------------------- EFFECT OF EXCHANGE RATE CHANGES (3,395) (3,970) (634) - -------------------------------------------------------------------------------------------------------------------------------- DECREASE IN CASH AND CASH EQUIVALENTS (1,506) (2,676) (7,684) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 12,966 15,642 23,326 - -------------------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 11,460 $ 12,966 $ 15,642 - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 12,220 $ 8,608 $ 804 Income taxes $ 13,925 $ 12,936 $ 8,864 Mandatorily redeemable convertible preferred stock issued for acquisition $ - $ - $ 4,950 Exchangeable preferred stock issued for acquisition $ - $ 15,640 $ -
The accompanying notes to consolidated financial statements are an integral part of this statement. 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF PRINCIPAL ACCOUNTING POLICIES THE COMPANY Cascade Corporation (the Company) is an international company engaged in the business of designing, manufacturing and selling equipment used primarily in materials handling applications. The Company manufactures an extensive line of hydraulically actuated attachments designed for mounting on lift trucks. Other major products include forks for lift trucks and non-pneumatic (solid) tires used primarily in material handling operations. Accordingly, the Company's sales and the collection of accounts receivable are largely dependent on the sales of lift trucks and on the sales of replacement parts. In addition, the majority of the Company's sales are made in North America. Headquartered in Portland, Oregon, the Company employs more than 2,100 people and maintains operations in 15 countries outside the United States. The Company was founded in 1943. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned except for certain of its Canadian subsidiaries which have issued convertible preferred stock (Note 10). Inter-company balances and transactions have been eliminated. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash on deposit and highly liquid investments with maturities of three months or less. DEPRECIATION AND AMORTIZATION Property, plant and equipment are stated at cost. Depreciation is generally provided on the straight-line basis over the estimated useful lives of the assets ranging from 15 to 35 years for buildings and 3 to 12 years for machinery and equipment. Goodwill consists of the cost of acquired businesses (Note 10) in excess of the fair value of net identifiable assets acquired. Generally, goodwill is amortized on the straight-line basis over 20 years. On a periodic basis, the Company reviews the realizability of recorded long-lived assets based upon expectations of nondiscounted cash flows of the acquired businesses. As of January 31, 1999, the Company believes that there are no significantly impaired long-lived assets. Accumulated amortization of goodwill and other assets was $9,518,000 and $4,706,000 at January 31, 1999 and 1998, respectively. RESEARCH AND DEVELOPMENT COSTS Research and development costs are expensed as incurred. Research and development expense is related to developing new products and to improving existing products or processes. INCOME TAXES Income taxes are accounted for in accordance with Statement of Financial Accounting Standards No. 109 (SFAS 109) "Accounting for Income Taxes." Deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. DIVESTITURE OF WORLDMAST PRODUCT LINE On January 22, 1999, the Company completed the sale of its Worldmast product line to Lift Technologies, Inc. for approximately $11,242,000. A former Cascade officer and director is the principal owner of Lift Technologies, Inc. The Company recorded a gain on the sale of $582,000. The transaction included the sale of the Worldmast factory in Westminster, South Carolina as well as other related manufacturing assets in North America and Europe. In fiscal 1998, the Worldmast product line contributed approximately $54,000,000 in net sales. FORWARD EXCHANGE CONTRACTS The Company enters into foreign exchange contracts to manage its exposure of foreign currency exchange risk. At January 31, 1999, the Company had approximately $7,382,000 in contracts to buy or sell foreign currency in the future. Substantially all of these contracts mature in one month or less. Gains or losses on such contracts are recognized in income and are measured over the period of the contract by reference to the forward rate for a contract to be consummated on the same future date as the original contract. STOCK-BASED COMPENSATION The Company accounts for its stock-based compensation under APB 25. FOREIGN CURRENCY TRANSLATION The Company translated the balance sheets of its foreign subsidiaries using fiscal year end exchange rates. The statements of income are translated using the average exchange rates for the fiscal year. The effects of such translations are included in the shareholders' equity account "cumulative foreign currency translation adjustments" as decreases of $3,184,000, $6,874,000 and $2,095,000 for the years ended January 31, 1999, 1998 and 1997, respectively. 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- ENVIRONMENTAL REMEDIATION The Company accrues environmental remediation costs if it is probable that an asset has been impaired or a liability incurred at the financial statement date and the amount can be reasonably estimated. Environmental compliance costs are expensed as incurred. Certain environmental costs are capitalized and depreciated over their estimated useful lives. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES The fair value of the Company's monetary assets and liabilities are evaluated based upon the existing interest rates related to such assets and liabilities compared to current market rates of interest. The carrying value of all of the Company's monetary assets and liabilities approximates fair value as of January 31, 1999 and 1998. REVENUE RECOGNITION The Company recognizes revenue when products are shipped to customers. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Changes in such estimates may affect amounts reported in future periods. Significant estimates and judgements made by management of the Company include matters such as the collectibility of accounts receivable, realizability of deferred income tax assets, realizability of intangible assets and future costs of environmental matters. NOTE 2 - ADOPTION OF FINANCIAL ACCOUNTING STANDARDS NUMBER 133 The Company adopted Statement of Financial Accounting Standards No. 133 (FAS 133), "Accounting for Derivative Instruments and Hedging Activities" in 1998. The adoption resulted in no material adjustment to the Company's financial statements. NOTE 3 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The Company has operations and sells products to dealers and original equipment manufacturers throughout the world. Approximately 35 percent of the Company's revenues are generated from international customers. The Company's activities expose it to a variety of market risks, including the effects of changes in foreign-currency exchange rates. These financial exposures are monitored and managed by the Company within the Company's foreign exchange management policy as approved by the Board of Directors. The Company's risk-management program focuses on the unpredictability of financial markets and seeks to reduce the effects that the volatility of these markets may have on its operating results. The Company maintains a foreign-currency risk-management strategy that uses derivative instruments to protect its interests from unanticipated fluctuations in earnings caused by volatility in currency exchange rates. Various amounts of the Company's payables, receivables and subsidiary royalties are denominated in foreign currencies, thereby creating exposures to changes in exchange rates. The Company purchases foreign-currency forward-exchange contracts, with contract terms normally lasting less than one month, to protect against the adverse effects that exchange rate fluctuations may have on foreign currency denominated trade receivables and trade payables. These derivatives do not qualify for hedge accounting, in accordance with FAS 133, because they relate to existing assets or liabilities denominated in a foreign currency. The gains and losses on both the derivatives and the foreign-currency-denominated trade receivables and payables are recorded as transaction adjustments in current earnings thereby minimizing the effect on current earnings of exchange-rate fluctuations. By using derivative financial instruments to hedge exposures to changes in exchange rates, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivatives contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates repayment risk for the Company. When the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, it does not possess repayment risk. The Company minimizes the credit or repayment risk in derivative instruments by: entering into transactions with counterparties whose credit ratings are A/A or higher; monitoring the amount of exposure to each counterparty; and monitoring the financial condition of its counterparties. Market risk is the adverse effect on the value of a foreign-exchange contract that results from a change in the underlying exchange rates. The market risk associated with foreign-exchange contracts is managed by the establishment and monitoring of parameters that limit the types and degree of market risk that may be undertaken. 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 4 - INCOME TAXES
YEAR ENDED JANUARY 31 1999 1998 1997 - ------------------------------------------------------------------------------------- (Dollars in Thousands) Income before taxes was as follows: United States $ 23,260 $ 28,260 $ 15,990 Foreign 7,995 3,830 8,995 - ------------------------------------------------------------------------------------- Total $ 31,255 $ 32,090 $ 24,985 - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- Taxes charged (credited) against operations were as follows: Current Federal $ 6,625 $ 9,105 $ 2,572 State 1,300 925 819 Foreign 1,425 4,260 2,816 - ------------------------------------------------------------------------------------- Total 9,350 14,290 6,207 - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- Deferred Federal 150 (430) 932 State 65 (80) 296 Foreign 320 (2,730) 130 - ------------------------------------------------------------------------------------- Total 535 (3,240) 1,358 - ------------------------------------------------------------------------------------- Total income taxes $ 9,885 $ 11,050 $ 7,565 - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- The federal rate reconciles to the effective rate as follows: Federal statutory rate 35.0% 35.0% 35.0% State income taxes, net of federal tax benefits 2.9 1.7 2.9 Effect of foreign tax rates (3.8) .6 ( .8) IRS settlement - - (5.7) Tax credits and other (2.5) (2.9) (1.1) - ------------------------------------------------------------------------------------- Effective income tax rate 31.6% 34.4% 30.3% - ------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------
The deferred tax liabilities (assets) recorded on the consolidated balance sheet are comprised of the following:
JANUARY 31 1999 1998 - ------------------------------------------------------------------------------------- (Dollars in Thousands) Accruals not deductible until paid $ (169) $ (1,113) Other (85) (52) - ------------------------------------------------------------------------------------- Current deferred income taxes $ (254) $ (1,165) - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- Depreciation $ 4,030 $ 4,651 Employee benefits (1,178) (1,151) Accrued environmental expenditures (3,920) (4,983) Other (2,302) (2,561) - ------------------------------------------------------------------------------------- Noncurrent deferred income taxes $ (3,370) $ (4,044) - ------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------
NOTE 5 - BORROWINGS
JANUARY 31 1999 1998 - ------------------------------------------------------------------------------------- (Dollars in Thousands) $100 million revolving line of credit, interest payable currently at a variable rate (based on certain financial ratios of the Company) over prime or LIBOR (6.625% at 1/31/99); principal payable in 2002 $ 59,000 $ 60,000 6.7% mortgage note, due quarterly through 2008 secured by plant 6,856 7,127 6.92% series A and series B senior notes, interest payable currently, principal due annually 2002 through 2007 75,000 75,000 Fixed assets under capital lease, variable interest (5.5% at 1/31/99), monthly payments through 200l 5,908 - 4.1% mortgage note, due semi-annually through 2001, secured by building 1,031 2,424 Other 1,498 2,735 - ------------------------------------------------------------------------------------- 149,293 147,286 Less current maturities 6,510 2,501 - ------------------------------------------------------------------------------------- Total long-term debt $142,783 $144,785 - ------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------
The revolving line of credit agreement and the series A and B senior notes contain dividend restrictions and certain covenants, including covenants related to subsidiary indebtedness, additional indebtedness, net worth, fixed charges, funded debt and leverage ratios. At January 31, 1999, the Company was in compliance with its loan covenants. Maturities of long-term debt for the years January 31, 2000 through January 31, 2004, and thereafter, respectively, are $6,510,000, $3,370,000, $13,222,000, $72,222,000, $13,222,000, and $40,747,000. Borrowing arrangements with commercial banks provided short-term lines of credit at January 31, 1999 totalling $22,322,000, of which $12,505,000 was unused. Average interest rates on short-term borrowings were 3.7% and 4.1% at January 31, 1999 and 1998, respectively. NOTE 6 - STOCK OPTION PLAN The Company has reserved 800,000 shares of common stock for the Cascade Corporation 1995 Senior Managers' Incentive Stock Option Plan (the Plan). The Plan permits the award of incentive stock options (ISO) to officers and key employees. Under the terms of the Plan, the purchase price of shares subject to each ISO granted must not be less than the fair market value on the date of grant. Accordingly, no compensation cost has been recognized for the stock option plan. Outstanding options vest after three years and are exercisable for ten years from the date of grant. 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The Company has determined that the pro forma effects of applying SFAS 123 would reduce earnings by $556,000, $247,000 and $100,000 for 1998, 1997, and 1996, respectively, using the following assumptions:
YEAR ENDED JANUARY 31 1999 1998 1997 - ------------------------------------------------------------------------------------- (Dollars in Thousands) Risk-free interest rate 5.5% 6.5% 6.7% Expected life 5 Years 5 Years 5 Years Expected volatility 35% 30% 26% Expected dividend yield 2.5% 2.5% 3.0%
A summary of the Plan's status at January 31, 1999, 1998 and 1997 together with changes during the periods then ended are presented in the following table:
WEIGHTED AVERAGE SHARES PRICE PER SHARE ------ --------------- BALANCE JANUARY 31, 1996 75,253 $ 16.37 Granted 93,341 16.00 Forfeited (23,162) 16.17 - -------------------------------------------------------------------------------------- BALANCE JANUARY 31, 1997 145,432 $ 16.17 Granted 136,262 15.25 Forfeited (1,971) 15.25 - -------------------------------------------------------------------------------------- BALANCE JANUARY 31, 1998 279,723 $ 15.73 Granted 237,337 16.37 Exercised (15,077) 16.37 Forfeited (122,794) 15.87 - -------------------------------------------------------------------------------------- BALANCE JANUARY 31, 1999 379,189 $ 16.00 - -------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------
The following table summarizes information about fixed options outstanding at January 31, 1999.
EXERCISE NUMBER WEIGHTED WEIGHTED AVERAGE PRICE OF SHARES AVERAGE PRICE CONTRACTUAL LIFE $ 15.25 89,825 $ 15.25 8 $ 16.00 43,680 $ 16.00 7 $ 16.37 245,684 $ 16.37 8
NOTE 7 - CAPITAL STOCK There are 200,000 shares authorized of no par value preferred stock; none are outstanding. NOTE 8 - EARNINGS PER SHARE The Company calculates earnings per share in accordance with Statement of Financial Accounting Standards No. 128 (SFAS 128) "Earnings Per Share." Accordingly, basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects potential dilution that could occur if convertible securities or stock options were exercised or converted into common stock.
YEAR ENDED JANUARY 31 1999 1998 1997 - ------------------------------------------------------------------------------------ (Dollars and Shares in Thousands Except Per Share Amounts) BASIC EARNINGS PER SHARE: Net income $ 21,370 $ 21,040 $ 17,420 Preferred stock dividends (530) (570) (60) - ------------------------------------------------------------------------------------ Income available to common shareholders 20,840 20,470 17,360 - ------------------------------------------------------------------------------------ Basic weighted-average shares of common stock outstanding 11,748 11,858 11,781 - ------------------------------------------------------------------------------------ Basic EPS $ 1.77 $ 1.73 $ 1.48 - ------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------ Diluted Earnings Per Share: Income available to common shareholders 20,840 $ 20,470 $ 17,360 Effect of dilutive securities: Mandatorily redeemable convertible preferred stock 410 440 - Exchangeable preferred stock 120 130 60 - ------------------------------------------------------------------------------------ Net income $ 21,370 $ 21,040 $ 17,420 - ------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------ WEIGHTED-AVERAGE SHARES OF COMMON STOCK OUTSTANDING 11,748 11,858 11,781 Assumed conversion of mandatorily convertible preferred stock 1,091 985 - Exchangeable preferred stock 309 330 16 Dilutive effect of stock options - 17 - - ------------------------------------------------------------------------------------ Diluted weighted-average shares of common stock outstanding 13,148 13,190 11,797 - ------------------------------------------------------------------------------------ Diluted EPS $ 1.63 $ 1.60 $ 1.48 - ------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------
NOTE 9 - PROPERTY, PLANT AND EQUIPMENT
January 31 1999 1998 - -------------------------------------------------------------------------------- (Dollars in Thousands) Land $ 5,261 $ 5,555 Construction in progress 99 592 Buildings 43,146 43,675 Machinery and equipment 162,194 150,603 - -------------------------------------------------------------------------------- 210,700 200,425 Accumulated depreciation (110,625) (99,278) - -------------------------------------------------------------------------------- $ 100,075 $ 101,147 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 10 - ACQUISITIONS 1997 ACQUISITIONS In February 1997, the Company purchased all of the outstanding capital stock of Hyco-Cascade Pty., Ltd., an Australian manufacturer and distributor of lift truck attachments and accessories. The amount paid in connection with this purchase was $12,603,000, which consisted of $7,447,000 in debt, $3,656,000 in common stock and $1,500,000 in cash. On March 11, 1997 the Company acquired all of the outstanding capital stock of Kenhar Corporation. Kenhar Corporation is the world's leading manufacturer of forks for lift trucks with sales and manufacturing locations in North America, Europe and Asia. The aggregate purchase price for this acquisition was approximately $71,944,000 and included $56,304,000 in debt and 1,100,000 exchangeable preferred shares of Cascade (Canada) Holdings, Inc. (Exchangeable Shares valued at approximately $15,640,000.) The Exchangeable Shares are convertible share for share into Cascade Corporation common stock. In fiscal 1998 300,000 exchangeable shares were redeemed for $4,350,000. Holders of Exchangeable Shares are entitled to voting rights of an equivalent number of Company common shares and are entitled to dividends equivalent to those declared and paid on like numbers of Cascade common shares. Cascade (Canada) Holdings Inc. is a wholly owned subsidiary of Cascade Corporation. Therefore, although the Exchangeable Shares have rights comparable with the Company's common stock, the Exchangeable Shares have been accounted for, based on their form, as minority interest on the Company's balance sheet. The Company also made other acquisitions during 1997 totaling $10,377,000. When the Company purchased Kenhar Corporation, a number of Kenhar's subsidiaries had minority interest holders. The Company has now acquired all of these minority interests. In addition, during 1997, the Company purchased a U.S. manufacturer of hydraulic cylinders and a European fork manufacturer. 1996 ACQUISITIONS In January 1997, the Company purchased all of the outstanding capital stock of Industrial Tires Limited, a Canadian corporation that manufactures solid rubber tires for the material handling industry. The total purchase price, including direct costs of acquisition and 330,000 shares of Cascade (Canada), Inc. Preferred Stock (the Preferred Stock) was $23,660,000. Each share of the Preferred Stock is convertible into one share of the Company's common stock at the holder's option. In addition, the Preferred Stock gives the holder the ability to require the Company to repurchase the shares on or after January 13, 2002 at the original issuance price of approximately $15 per share, for a maximum repurchase obligation of approximately $4,950,000. Consequently, the Preferred Stock is classified as "Mandatorily Redeemable Convertible Preferred Stock." The provisions of the Preferred Stock also entitle the holder to cumulative dividends paid on the common shares of Cascade Corporation and to a liquidation preference equal to approximately $15 per share in priority to any payment on any shares ranking junior to the Preferred Stock. In addition to the acquisitions discussed above, during 1996 the Company acquired two other manufacturers in related businesses. The purchase price for these acquisitions was $4,063,000. All of the above acquisitions were accounted for under the purchase method of accounting. The acquired businesses have been included in the Company's results of operations since each respective acquisition date. PRO FORMA INFORMATION The following unaudited consolidated pro forma information shows the Company's results of operations as though the 1996 and 1997 acquisitions had occurred on February 1, 1996 and 1997 respectively.
YEAR ENDED JANUARY 31 1998 1997 - ---------------------------------------------------------------------------------- (Dollars in Thousands except per share amounts) UNAUDITED Total revenue $ 377,565 $ 358,268 Net income $ 21,516 $ 13,616 Net income per share - basic $ 1.77 $ 1.16 Net income per share - diluted $ 1.62 $ 1.01
The pro forma results of operations have been adjusted to include the additional costs of depreciation, goodwill amortization and interest expense based on the actual purchase price and related borrowings. Expenses have not been reduced to reflect any operational efficiencies that may result from the combination of these entities. 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 10 - ACQUISITIONS (CONTINUED) The pro forma results are not necessarily indicative of the actual results of operations that would have occurred had the purchases been made at the beginning of the respective periods or of results that may occur in the future. NOTE 11 - COMMITMENTS AND CONTINGENCIES The Company leases certain of its facilities and equipment under noncancelable operating leases. The minimum rental commitments under these leases for the years ending January 31, 2000 through January 31, 2004, respectively, are $4,401,000, $3,123,000, $2,067,000, $1,531,000 and $804,000. For the years ended January 31, 1999, 1998 and 1997 total rentals charged to expense amounted to $4,800,000, $2,042,000 and $789,000. NOTE 12 - ENVIRONMENTAL MATTERS The Company is engaged in environmental investigations and remediation efforts in its ordinary course of business. The Company has sued a number of its insurers to enforce policies it contends provide coverage for expenses associated with these efforts. Earnings for the year ended January 31, 1998 include the effect of settlements with several of these insurers totaling $23,750,000. The impact of these settlements on net income, after adjusting for certain litigation and environmental expenses and income taxes, was approximately $9,770,000. Litigation against two remaining insurers resulted in a jury verdict in the Company's favor. As issues involving damages, prejudgment interest, attorneys fees, and declaratory relief are pending before the trial court, the financial statements have not been adjusted to account for the jury verdict. The Company's accrued environmental liability at January 31, 1999 totalled $8,228,000, of which $1,000,000 is expected to be spent in 1999 and is included in current liabilities in "other accrued expenses." The Company believes this accrual is adequate and fairly approximates known future remediation costs. However, since future remediation costs are subject to many uncertainties, actual expenses may exceed the amount recorded at January 31, 1999. NOTE 13 - PENSION AND OTHER POSTRETIREMENT BENEFITS The Company has defined benefit plans covering certain employees. In December 1988, the Company amended the plan covering its U.S. employees to limit benefits to those accrued through December 31, 1988. During 1997, the Company settled the pension obligation under this plan by funding lump sum distributions or non-participating annuity contracts. The Company's funding policy for the pension plan is to make annual contributions based on actuarially determined funding requirements. The pension benefits are based on years of service and average earnings over a specified five-year period of time. The Company sponsors a number of defined contribution plans covering substantially all North American employees. Employees may contribute to these plans and the Company matches these contributions in varying degrees. The Company also makes contributions to certain plans based on a percentage of wages. Defined contribution pension expense for the Company was $2,267,000, $1,901,000 and $1,488,000 for 1998, 1997 and 1996, respectively. The Company provides health care benefits for eligible retirees. The Company accounts for such costs under Statement of Financial Accounting Standards No.106 "Employers' Accounting for Postretirement Benefits Other Than Pensions." Therefore, the Company is accruing the future costs of providing such benefits to eligible active employees during the years they render service. To estimate the costs of health care benefits for eligible retirees, health care costs were assumed to increase at an annual rate of 10% with the rate of increase declining ratably to 4% by 2005 and thereafter. If the cost trend rates were increased by one percentage point, the accumulated post-retirement benefit obligation as of January 31, 1999 would increase by $579,639 and net periodic post-retirement benefit cost would increase by $53,205. 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 13 - PENSION AND OTHER POSTRETIREMENT BENEFITS (CONTINUED) The status of employee pension and other postretirement benefit plans is summarized below:
PENSION BENEFITS OTHER BENEFITS YEAR ENDED JANUARY 31 1999 1998 1997 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ (Dollars in Thousands) CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $ 6,001 $ 5,629 $ 4,261 $ 4,890 $ 4,007 $ 4,403 Service cost 289 237 - 83 69 83 Interest cost 392 529 248 320 281 288 Participant contributions 134 187 - - - - Plan amendments - - - - - - Acquisition and divestitures (142) 3,653 1,669 - - - Exchange rate changes (10) - - - - - Settlements - (4,603) (689) - - - Benefits paid (230) (625) (68) (470) (403) (389) Actuarial (gain) or loss 1,470 994 208 297 936 (378) - ------------------------------------------------------------------------------------------------------------------------------------ BENEFIT OBLIGATION AT END OF YEAR $ 7,904 $ 6,001 $ 5,629 $ 5,120 $ 4,890 $ 4,007 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year 6,070 5,656 3,866 $ - $ - $ - Actual return on plan assets 1,129 468 257 - - - Acquisition and divestitures (261) 3,691 1,630 - - - Settlements - (4,603) (689) - - - Employer contributions 374 1,296 660 470 403 389 Participant contributions 134 187 - - - - Benefits paid (230) (625) (68) (470) (403) (389) Exchange rate changes (31) - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ FAIR VALUE OF PLAN ASSETS AT END OF YEAR $ 7,185 $ 6,070 $ 5,656 $ - $ - $ - - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ RECONCILIATION OF FUNDED STATUS Funded status $ (719) $ 69 $ 27 $ (5,120) $ (4,890) $ (4,007) Unrecognized actuarial (gain) or loss 19 - 1,185 2,021 1,860 974 Unrecognized prior service cost - - 120 - - - - ------------------------------------------------------------------------------------------------------------------------------------ NET AMOUNT RECOGNIZED AT YEAR-END $ (700) $ 69 $ 1,332 $ (3,099) $ (3,030) $ (3,033) - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL POSITION CONSIST OF: Prepaid benefit cost $ - $ 69 $ 1,332 $ - $ - $ - Accrued benefit liability (700) - (3,099) (3,030) (3,033) - ------------------------------------------------------------------------------------------------------------------------------------ NET AMOUNT RECOGNIZED AT YEAR-END $ (700) $ 69 $ 1,332 $ (3,099) $ (3,030) $ (3,033) - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $ 289 $ 237 $ - $ 83 $ 69 $ 83 Interest cost 392 529 248 320 281 288 Expected return on plan assets (312) (425) (292) - - - Amortization of prior service cost - 5 13 - - - Amortization of transitional (asset) or obligation - 25 70 - - - Recognized net actuarial (gain) or loss - - - 136 49 84 - ------------------------------------------------------------------------------------------------------------------------------------ NET PERIODIC BENEFIT COST $ 369 $ 371 $ 39 $ 539 $ 399 $ 455 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ WEIGHTED-AVERAGE ASSUMPTIONS AS OF DEC. 31 Discount rate 6.50% 7.50% 7.25% 6.50% 6.75% 7.25% Expected long-term rate of return on plan assets 6.50% 8.00% 7.25% N/A N/A N/A
16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 14 - INFORMATION ABOUT OPERATIONS
YEAR ENDED JANUARY 31 NORTH AMERICA EUROPE OTHER ELIMINATIONS CONSOLIDATED - ---------------------------------------------------------------------------------------------------------------------------- (Dollars in Thousands) 1999 Sales to unaffiliated customers $ 264,625 $ 111,245 $ 32,060 $ - $ 407,930 Transfers between areas 15,626 7,679 352 (23,657) - - --------------------------------------------------------------------------------------------------------------------------- Total revenue 280,251 118,924 32,412 (23,657) 407,930 - --------------------------------------------------------------------------------------------------------------------------- Net income 18,135 3,605 (370) - 21,370 - --------------------------------------------------------------------------------------------------------------------------- Identifiable assets $ 183,943 $ 130,390 $ 33,524 $ - $ 347,857 - --------------------------------------------------------------------------------------------------------------------------- 1998 Sales to unaffiliated customers $ 230,140 $ 102,570 $ 37,155 $ - $ 369,865 Transfers between areas 17,500 1,020 310 (18,830) - - --------------------------------------------------------------------------------------------------------------------------- Total revenue 247,640 103,590 37,465 (18,830) 369,865 - --------------------------------------------------------------------------------------------------------------------------- Net income 19,125 2,895 (980) - 21,040 - --------------------------------------------------------------------------------------------------------------------------- Identifiable assets $ 220,194 $ 95,894 $ 33,504 $ - $ 349,592 - --------------------------------------------------------------------------------------------------------------------------- 1997 Sales to unaffiliated customers $ 130,145 $ 67,925 $ 20,415 $ - $ 218,485 Transfers between areas 16,971 305 334 (17,610) - - --------------------------------------------------------------------------------------------------------------------------- Total revenue 147,116 68,230 20,749 (17,610) 218,485 - --------------------------------------------------------------------------------------------------------------------------- Net income 12,845 2,815 1,760 - 17,420 - --------------------------------------------------------------------------------------------------------------------------- Identifiable assets $ 114,873 $ 65,932 $ 18,688 $ - $ 199,493 - ---------------------------------------------------------------------------------------------------------------------------
17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 15 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
JANUARY 31 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER - --------------------------------------------------------------------------------------------------------------------------------- (Dollars in Thousands except per share amounts) YEAR ENDED JANUARY 31, 1999 Net sales $ 107,125 $ 105,160 $ 105,660 $ 89,985 Gross profit before depreciation 33,490 32,075 33,320 27,850 Net income 6,815 5,490 6,025 3,040 Net income per share: Basic $ .56 $ .45 $ .50 $ .26 Diluted $ .51 $ .41 $ .46 $ .24 YEAR ENDED JANUARY 31, 1998 Net sales $ 84,725 $ 90,340 $ 97,525 $ 97,275 Gross profit before depreciation 26,485 27,895 29,230 26,650 Net income 2,900 9,705 6,480 1,955 Net income per share: Basic $ .23 $ .80 $ .54 $ .15 Diluted $ .23 $ .73 $ .49 $ .15
REPORT OF INDEPENDENT ACCOUNTANTS - -------------------------------------------------------------------------------- TO THE BOARD OF DIRECTORS & SHAREHOLDERS OF CASCADE CORPORATION In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, of changes in shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Cascade Corporation and its subsidiaries at January 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended January 31, 1999, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP Portland, Oregon March 23, 1999 18 EX-27 3 EXHIBIT 27
5 1,000 YEAR JAN-31-1999 FEB-01-1998 JAN-31-1999 11,460 0 73,363 1,009 62,015 153,723 210,700 110,625 347,857 59,175 0 15,949 0 5,858 113,636 347,857 407,930 407,930 281,195 371,245 (4,755) 0 10,940 31,255 9,885 21,370 0 0 0 21,370 1.77 1.63
-----END PRIVACY-ENHANCED MESSAGE-----